February Technical Analysis – DRN, EDC, ERX, FAS, and TMF

For those of you visiting for the first time, I use basic technical analysis to help make trading decisions related to a covered call strategy. Each month, after options expire, I review price and market action since the previous option expiration date, as well as my commentary from the previous month’s analysis.

As I say in my monthly cashflow report, every investor and trader should review their trades on a regular basis, and this effort helps me improve my ability to “read the tape”.

Enjoy!

February Market Analysis

What can I say…the market has been unstoppable so far this year. What looked to be the start of a short-lived, weak rally in December has turned into a robust uptrend. Trading volume is still on the low side, but fighting the market is a lesson in futility.

Last week, the US markets picked up 2 distribution days, but we’ve reach price levels unseen since 2007, so some profit taking is to be expected. IBD raised an eyebrow, stating that all the US indexes suffered distribution in two sessions, and the two biggest up days came on falling volume.

February Technical Analysis for DRN

Here were my thoughts on DRN in January:

DRN broke the downtrend started in July 2011, and moved steadily higher to close out 2011. The past few days have seen more upward price movement, bringing DRN to it’s next level of resistance (mid 50’s). This level has been tested several times since last August without success. The recent upward momentum, coupled with a new sideways trend should be good news for option traders, with the next level of resistance is in the mid-60’s.

February’s Chart:

DRN powered through the mid-50’s resistance level, so that now becomes the new support level as DRN continues its climb. We did see DRN touch the mid-60’s, were it met resistance as expected (price low’s from April and June 2011). These support and resistance levels ($65 and $57 respectively) create a pretty narrow range, so we could see some sideways price movement over the next month as the markets work to consolidate their gains. For now, the current uptrend remains intact, but as with the markets, DRN’s falling trading volume is cause for concern.

February Technical Analysis for EDC

January’s commentary:

EDC decided to head north to start off 2012, breaking the July downtrend and gaining 35% since my last review. Too bad I’m not focused on capital gains! The remaining trends are still negative, so I’ll be watching EDC to see if it can pass the next test (Sept-Nov downtrend). If so, there is another downtrend to contend with, but not before some impressive gains or another 4 months of sideways price movement.

February’s Chart:

EDC passed the next test (Sept-Nov downtrend) and then some. As of this post, EDC sits just below 120, which has been a sticking point since August 2011. 3 attempts to break out, 3 retreats. Going forward, a sustained short-term uptrend and less price volatility (more constructive price action) indicate increased buying pressure. On the other side, a huge obstacle exists in the form of the April-July downtrend. The good news is that EDC should confirm its direction this month, and is the stock to watch (or trade). I have my fingers crossed for a move higher, as the next level of resistance is in the 160’s (another 30% increase).

February Technical Analysis for ERX

January’s Commentary

ERX broke the downtrend, but wasn’t able to make as much progress as the other ETFs (excluding TMF). The mid-50’s are a key test, but ERX appears to have a solid, short-term uptrend powering it higher.

February’s Chart:

It took most of the month, but ERX finally reached the mid-50’s. Hopefully, the short-term uptrend will continue, with the mid-50’s become a new support level and ERX challenging the next resistance level in the low 60’s. A long term downtrend (May to July 2011) still exists, but ERX is still 20%-25% below that level.

February Technical Analysis for FAS

January’s Commentary

FAS broke the July downtrend, and is poised to take out the both the low-80’s resistance level AND the uber-long downtrend dating back to the spring of 2011. Past those levels, FAS could see 110 before running into any problems.

February’s Chart:

$110 here we come! Looking really long term, the April 2010 – February 2011 downtrend is at ~150, so there is some room to run this year.

February Technical Analysis for TMF

January’s Commentary

Economic turmoil remained front and center, but TMF did not continue higher like I said it would. Instead, it broke the long-term uptrend and is now looking for support in the low 60’s.

February’s Chart:

TMF’s downturn appears to have accelerated, indicated by the “lower high’s” (~75 in December, ~72 then ~70 in January, and ~66 in Feb). TMF also spent a majority of February below it’s 50 day / 10 week moving average. Zooming out to a 2 year timeframe, the next level of support is the low 50’s!